SOUTH KOREA Trends and Developments Contributed by: Kyu Dong Kim and Yong Whan Choi, Yulchon LLC
Companies with existing patent licence agreements should review whether the royalty payment provisions – particularly, the scope of royalty payments – are clearly defined. Where ambiguity exists, the parties should consider proactively securing documentation that evidences their true intent. If any portion of the royalties was paid for the use of patented technology in Korea, it is also important to prepare and maintain records that substantiate the scope of such payments. Companies should carefully consider the implications of the En Banc Decision when entering into patent licence agreements in the future. It is recommended to clearly define the scope of royalty payments and to include provisions that explicitly require mutual co-operation in the event of tax dispute proceedings. While many multinational enterprises have historically resolved patent royalty disputes through domestic litigation, they may now need to explore alternative resolution mechanisms, such as the Mutual Agree - ment Procedure, to achieve more efficient and effec - tive outcomes. 2. Recent Developments in Korea’s Domestic Implementation of the OECD Pillar Two Global Anti-Base Erosion (GloBE) Rules Following the United States’ proposal for a “side-by- side” approach and subsequent discussions in the Inclusive Framework, the OECD released a Side-by- Side (SbS) Package in January 2026. The SbS Pack - age is intended to reduce friction between the OECD’s GloBE architecture and the United States’ existing minimum-tax framework by providing a structured pathway to reconcile the two regimes. At a high level, the SbS Package introduces the con - cept of a “Qualified SbS Regime”. Where a multina - tional enterprise (MNE) group’s ultimate parent entity (UPE) jurisdiction operates such a regime, the pack - age provides a mechanism that, in effect, switches off top-up tax under the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) for the group’s entities by treating the relevant top-up tax amount as zero for IIR/UTPR purposes. The package describes a Qualified SbS Regime as a composite of three building blocks. First, the UPE jurisdiction must operate a “Qualified Worldwide Tax
System”, designed to ensure that low-taxed foreign profits are brought into scope through a parent-level minimum-tax style inclusion. Second, it must oper - ate a “Qualified Domestic Tax System”, intended to secure a minimum-tax outcome on domestic profits. Third, it must provide a qualifying foreign tax credit (FTC) mechanism to manage potential double taxa - tion that could arise where jurisdictions apply Quali - fied Domestic Minimum Top-up Tax (QDMTT) regimes. Under the package’s framing, the United States is treated as meeting the Qualified Worldwide Tax Sys - tem requirement through a Net CFC Tested Income (NCTI) regime, and the Qualified Domestic Tax Sys - tem requirement through the Corporate Alternative Minimum Tax. Further, the US Internal Revenue Ser - vice administrative interpretations allow QDMTTs to be treated as creditable for FTC purposes, and the OECD’s “central record” now reflects this position for the United States accordingly. For Korean subsidiar - ies and branches of US-headquartered groups, this framework is expected to reduce the practical risk of incremental cash tax liabilities and compliance bur - dens arising from IIR/UTPR outcomes. The SbS Package does not, however, function as a blanket shield against QDMTTs. It does not prevent jurisdictions from applying their own QDMTTs, which are designed to apply first under the Pillar Two GloBE rules. The sequencing remains critical: (i) QDMTT, (ii) IIR and (iii) UTPR. From a practical perspective, the SbS Safe Harbour effectively neutralises (ii) and (iii), while leaving (i) intact. For Korea, that distinc - tion becomes relevant from 2026 onward, as Korea’s QDMTT will apply and Korea can collect top-up tax on low-taxed Korean profits regardless of whether the group is US- headquartered and otherwise insulated from IIR/UTPR top-up tax. Against this backdrop, the practical focus for US-head - quartered groups with Korean operations may shift towards ensuring that Korean QDMTT calculations are robust, well supported by documentation, and defen - sible in the event of audit. For groups headquartered outside the United States, a separate strategic consid - eration is whether other UPE jurisdictions may seek to adopt domestic regimes that could qualify as a “Quali - fied SbS Regime”. While Korea’s statutory corporate
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